Performance is under pressure under the influence of 23 years of collection, and 24 is expected to usher in a clear inflection point

The company released its annual report for the year 23 and the quarterly report for the year 24 on 4/24, with revenue of 4.12 billion yuan (-5.9% yoy), net profit to mother of 550 million yuan (-24.9% yoy), after deducting non-net profit of 540 million yuan (-12.1% yoy).

The main reason for the 23 year deduction was to the parent end. 4Q22 confirmed the asset disposal revenue of 91.01 million yuan from the relocation of the Seongnam factory area. The main reasons for the decline in revenue and profit in '23:1) APIs: 2H23 downstream customers went to inventory+price cuts in the irregular market, putting pressure on gross margins; 2) Formulations: revenue from progesterone capsules and rocuronium bromide declined under the influence of collection. 1Q24 had revenue of 1.04 billion yuan (+8.4% yoy), net profit of 150 million yuan (+13.5% yoy), after deducting non-net profit of 150 million yuan (+9.8% yoy). Considering the steady rise in API prices+clearance of collection risk+release of specialty formulations, we expect the company's net profit to be 6.79/8.15/996 million yuan in 24-26 years, and a target price of 15.42 yuan (previous value of 16.20 yuan) under the segmented valuation method, maintaining the “buy” rating.

APIs: The Yangfu factory has passed the FDA audit. Irregular market prices have bottomed out. The profit margin is expected to improve the API sector to achieve revenue of 1.79 billion yuan (+3.1% yoy) in 23, of which: 1) Self-operated APIs:

Revenue of 800 million yuan (+10% yoy) was achieved in '23, but considering the decline in API prices in the 2H23 irregular market, we estimate a slight decline in profit. We estimate 1Q24 single-digit growth. Considering that the Yangfu factory has passed the FDA audit in '23, we expect to achieve ~ 15% compound revenue growth in 24-26; 2) The Italian subsidiary: achieved revenue of 680 million yuan (-3% yoy) in 23, and a steady profit margin (net profit margin: 15.5% in 23 vs 15.9% in 22 vs. 14.6% in 21), we estimate a slight decline in 1Q24 revenue (mainly due to the high base of 1Q23), and we expect revenue growth of ~ 10% in 24-25.

Formulations: Short-term performance is under pressure due to the collection of progesterone capsules and rocuronium bromide. Waiting for the new product release to generate revenue of 2.28 billion yuan (-12.4% yoy) in 23 years, we estimate 1Q24 double digit growth, and expect annual revenue growth of ~ 20%, of which: 1) Gynecology: Revenue of 450 million yuan (-18% yoy) in 23 years, the main reason progesterone capsules are included in regional collection. Considering that norethylene enanthate and drospirenyl estradiol (II) were marketed in 22/23, respectively. Approval is imminent and is expected to contribute significantly; 2) Anesthesia : Revenue of 100 million yuan (-80% yoy) in 23, mainly due to pressure from the collection of rocuammonium bromide, we expect a steady recovery in 24 years; 3) Breathing: Revenue of 670 million yuan (-1% yoy) in 23, mainly due to changes in sales models and channel inventory clearance, we expect to recover ~ 20% growth in 24 years.

The R&D pipeline is about to enter an intensive harvest period

1) Gynecology: norethisterone enanthate (exclusive, long-term contraception, market introduction began in 2Q22, peak value ~ 1.5 billion yuan), drospirenethylestradiol (II) (first imitation, 4M23 approved, peak value 500 to 1 billion), estradiol valerate (first imitation, to be approved soon, peak value of 500 to 1 billion), progesterone gel (expected to be approved by the end of 24, peak value of 500 to 1 billion yuan), didroprogesterone (expected to be approved by the end of 24); 2 Myosomatosis: Glucose sodium (7M22 approved), Class 1 new drug omexone sodium (expected NDA within 24 years, Peak value: 20+ billion yuan), Class 2 new drug CZ1S (post-operative analgesia, ropivacaine improvement, clinical phase 2); 3) Breathing: Class 2 new drug CZ4D (pulmonary aspergillosis, clinical phase 1).

Risk warning: Product development fails or progress falls short of expectations, and new product releases fall short of expectations.